Monetary policy no villain

The interbank futures market is right to expect that the RBA will leave policy unchanged at the August board meeting. In this post, I suggest that concerns that low interest rates are contributing to, or exacerbating imbalances in the economy are misplaced. The upswing in dwelling investment is desirable considering that animal spirits in the corporate sector remain dormant, while the lift in dividend payout ratios - to levels that remain within the range of historical norms - owe as much to the fact that investors have lost trust in CEOs to undertake value accretive investment projects. There is little evidence that companies are under-investing in future growth because the world remains awash with excess capacity and low inflation and wages growth in Australia confirms that the economy continues to suffer from a shortfall in aggregate demand. I expect this state of affairs to continue, which will lead to a growing chorus for more monetary stimulus by year-end. (VIEW LINK)